April 18, 2014

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During the coming weeks, a number of Indiana cities and counties will be coming to terms with their new budget realities.
The property tax caps that will be phased in over the next two years have prompted discussion of "economic emergency"
declarations.
I have seen this before, while working at a university in a town that dabbled with bankruptcy for a full three years before
coming to grips with a bloated budget.

The sad truth is that shrinking pains can be as difficult as growing pains, without the soothing balm of a certain happy outcome.
Many communities in the Midwest are shrinking. That need not mean life will get worse for their citizens. Smaller, but more
prosperous, cities are possible. But that outcome won't occur unless community leaders, elected and otherwise, come to grips
with the alternatives the future offers. This will take the courage to do what is right, not simply what wins the next election.

In too many Hoosier communities, an attachment to the past has hindered economic and community development. The property-tax
alarms that sounded last year were caused by ineffective and bloated government in many locations throughout the state. Those
communities now feeling the pain of budget cuts created unsustainable conditions. These are the places in which businesses
and residents fled.

The town I referred to above (which was in another state) had a dwindling tax base. Property taxes were high, while local
services were expensive and ineffectual. In the first year of precarious circumstances, many of the people in leadership were
unable to face the music. Instead of warning their constituents (the loudest of whom were city employees), they simply begged
the state for help. That came to naught, and they muddled by until the second year. By then, the reality of self-determination
struck home. They increased taxes, to include a non-resident income tax. Businesses fled.

In year three, the leaders cut the budget. They dramatically cut public safety employment to come in line with national norms.
They trimmed non-essential services and they privatized trash collection. Throughout the process, they thought carefully about
quality-of-life issues, investing in parks and other amenities. The city emerged much stronger as a result. It still has its
troubles, but its direction of change is now for the better.

Over the next two years, I expect the same scenario will play out in Indiana. In countless places, the city council and mayor
will wrestle with tough issues. Council meetings will be scenes of participative democracy. This will lead to a struggle between
those who cling desperately to a distant past and those who boldly embrace the future. This year, we'll hear lots of debates
about the need for new taxes. Many leaders will appeal to the state for help. But the fact that new revenue won't cover costs
will force tough budget cuts. The earlier that reality is confronted, the less painful the choices.

___

Hicks is director of the Bureau of Business Research at Ball State University. His column
appears weekly. He can be reached
at bbr@bsu.edu.

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Economic Analysis columnist

Hicks is director of Ball State University’s Center for Business and Economic Research and an associate professor of economics. He has a bachelor’s degree in economics from Virginia Military Institute, and an M.A. and Ph.D. in economics from the University of Tennessee. He has been on the faculty at Tennessee, Marshall University and the Air Force Institute of Technology. Hicks has written two books, more than 25 scholarly papers and over 100 technical reports. His work extends from the economic consequences of Hurricane Katrina and Wal-mart in local communities, to state taxation and federal environmental policy. He has testified before the U.S. Senate, several state legislatures and in federal and state courts. Hicks is an Army Reserve officer with 24 years of service, including combat and peacekeeping tours. He’s married to the former Janet Thomas, and has a daughter and two sons.

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